Beneath please find the Balance Sheet of the “Liberty Watch Co.

”
as of December 31, 2011

Liberty Watch Company

Balance Sheet
December 31, 2011

Current Assets:
Cash $30,000
Accounts Receivable 10,000
Office Supplies 5,000
Inventory 20,300
Total Current Assets $65,300
Long-term Assets:
Property, Plant & Equipment $60,000
Less: Accumulated Depreciation (10,000)
Total Long-Term Assets 50,000
Total Assets $115,300

Current Liabilities:
Accounts Payable (Inventory) $12,000
Dividends Payable 10,000
Total Current Liabilities $22,000
Long-term Liabilities:
Note Payable 20,000
Total liabilities $42,000
Stockholders' Equity:
Paid-in Capital 40,000
Retained Earnings 33,300
Total Stockholders' Equity 73,300
Total Liabilities and Stockholders' Equity $115,300

During 2012, the company did the following transactions:

1. On January 6th, the company received cash at $25,000 due to

the issuance of common stocks at $25,000.

2. Along 2012, the company collected all receivables from

2011. It also paid all dividends due at the beginning of the
year.

3. Along the year, the company made sales for a total amount
of $240,000, evenly distributed month by month. Sales on
cash were 30% of the total amount of sales. For credit
sales, the company typically collected its cash one month
after the sale was done.

4. Credit purchases of inventory along the year amounted

$140,000. At the end of 2012, the Inventory was counted, and
worth $20,000. Note that at December 31st, the remaining
balance at Accounts Payable was $35,000.

5. On June 30th, the company borrowed $50,000 in a note

payable. The note expires in 12 months, and the interest
annual rate is 10%. Total interest expense for the note will
be paid next year.
 6. On July 1st, the company received $5,000 payment from a
customer for services to be performed during the year. At
December 31st, 80% of the work has been completed.

7. On September 31st, the company signed a contract to place

advertisements in a local monthly magazine for the next ten
months at a total price of $10,000 paying cash for the total
amount in advance.

8. On October 31st, the company purchased machinery costing

$6,000, paying the total amount by cash. In order to
calculate the depreciation expense, note that at the
beginning of 2012, the remaining useful life of the existing
equipment was of 5 years. For the total depreciation expense
in 2012 you should add two months of depreciation for the
new machine.

9. Total wages earned by employees in 2012 amounted to

$40,000. At the end of the year, just $34,000 of these wages
had been paid

10. On December 31st, the company paid the rent of the

warehouse for the entire year, paying what was due. It also
paid, in advance, $5,000 for 5 months' rent, at the same
monthly rate applied since the beginning of the year.

11. The consumption of office supplies along the year was of

$3,800.

REQUESTED:

1. Please make the journal and ledger entries showing the

transactions listed above. Make the necessary adjustments as of
December 31st, 2012. You do not need to make month-by month
entries of revenues and expenses.

2. Prepare the Balance Sheet as of December 31st, 2012, and the

Income Statement for year 2012.

3. Prepare the Cash Flow statement using the direct method and
identify in the T account of cash the different activities
generating or consuming cash.

Indications:
Do not consider decimals
In order to make your work easier, you may want to write, first,
all the entries that have a date, and at the end those that
refer to a long period. In any case, order the entries as
better suits you.